Concept in 60 seconds: materiality A misstatement is material if it could reasonably be expected to change the decisions of people who use the financial statements. So a $5,000 error might not matter to a company with $50 million of revenue, but could matter a lot to one with $200,000. Materiality is about size and nature: a small amount can still be material if it involves fraud, turns a profit into a loss, or affects a loan covenant. Auditors set an overall materiality for the statements, then a lower performance materiality to leave a cushion for errors they don't find. Exam tip: materi…
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